A Regulation Impact Statement prepared by Treasury has quantified the “big four” largest cost savings in proposed amendments to the Future of Financial Advice (FoFA) rules.
The paper, published in November last year, calculates an ongoing total cost saving figure of $191.3 million a year from the government’s proposed amendments, and $87.7 million a year in saved implementation costs. The ongoing savings represetnalmost 20 per cent of the government’s pre-election promise to reduce the red and green tape burden on Australian businesses.
Removing the opt-in requirement of FoFA is the biggest cost saver, accounting for $45.1 million of the ongoing cost savings, and almost $80 million in implementation costs. Treasury estimates changes to the fee disclosure requirements will save $40.8 million a year, and about $800,000 in implementation costs, while exempting “general advice” from the definition of conflicted remuneration will save $38 million a year and $10 million in implementation costs. Removal of the controversial “catch-all” clause of the best interests duty – section 961B(2)(g) – will save nothing in implementation costs, but will save an estimated $34.1 million a year in ongoing compliance costs.
Treasury says none of the other proposed amendments will save the profession anything in either compliance or implementation costs. The identified cost savings represent “just over half of the estimated $375 million ongoing costs of complying with FoFA”, it says.
“Consultation on this options-stage Regulation Impact Statement will enable these cost estimates to be further refined. Whilst it is anticipated that some of the cost savings to industry will be passed through to consumers, it is difficult to quantify the extent to which this will occur.”
Treasury says an effect of the amendments will be that “small businesses are likely to be able to spend more time on their core business of providing financial advice to consumers and less time on compliance-related activities”.
“This should result in both cost savings and revenue growth opportunities, both of which should increase the competitiveness of small businesses in the industry,” it says.
“Small businesses, for the purposes of this analysis, are considered to employ fewer than 60 advisers. Particularly for the smallest firms, compliance requirements typically come with significant opportunity costs: small businesses have fewer staff available to dedicate to administration and compliance, and any time spent on compliance is time not spent providing advice, and hence earning fees.”
Meanwhile, a running Professional Planner online poll of reveals that (at the time of writing) 53 per cent of readers do not believe that watering down the best interests duty will have a negative impact, while 47 per cent believe it will.
| Proposed change | Estimated average ongoing cost saving ($m a year) |
Estimated implementation cost saving ($m a year) |
| Remove opt-in requirements | 45.1 | 76.9 |
| Limit the annual fee disclosure requirements to be for prospective clients only. |
40.8 | 0.8 |
| Removal of the “catch all” provision in the best interests duty |
34.1 | Nil |
| Limit the ban of commissions on risk insurance to circumstances where no personal financial advice has been provided, specifically where automatic cover is provided under a default (MySuper) fund. |
Nil | Nil |
| Exempt “general advice” from definition of “conflicted remuneration”. |
38.0 | 10.0 |
| Clarify the exemption from the ban for execution-only services. |
Nil | Nil |
| That the training exemption permits training expenses related to conducting a financial services business, rather than just the provision of advice. |
Nil | Nil |
| Amendments to volume-based shelf-space fees. |
Nil | Nil |
| Clarify the definition of intra-fund advice. | Nil | Nil |
| Grandfather existing remuneration from the ban on conflicted remuneration. |
Nil | Nil |
| Explicitly recognise that a “balanced” remuneration structure is not conflicted remuneration. |
Nil | Nil |
| Allow bonuses to be paid in relation to revenue that is permissible under FOFA |
Nil | Nil |
| Allow banks to continue to take advantage of the basic banking carve-out, even when providing financial advice on other products. |
Nil | Nil |
| Amendments to the FOFA stockbroking exemptions. |
Nil | Nil |
| Other minor technical changes | Nil | Nil |
| Total | 191.3 | 87.7 |
| Source: Options-stage Regulation Impact Statement, Future of Financial Advice amendments Treasury, November 2013. |
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